May 21, 2014

SINGAPORE

Notes from the Field

PANG Ti Wee

STRATEGY

CIMB cost of living survey

series will rents get stuck?
With the cost of living in Singapore on the rise, we examined both the
affordability and attractiveness of Singapore from the hospitality and
retail angles. With the data from our survey, we asked ourselves: can
hotel room rates and retail mall rents grow further from here on?

T (65) 6210 8609

E tiwee.pang@cimb.com

Jessalynn CHEN
T (65) 6210 8672
E jessalynn.chen@cimb.com

Singapore Research Team

Figure 1: CPI vs. household income

(S$)

Index

11,000

120.0

10,000

115.0

110.0

9,000

105.0

8,000

100.0
7,000

95.0

6,000

90.0

5,000

Highlighted Companies
Frasers Centrepoint Trust

85.0

4,000

80.0
2000

2001

2002

We rate FCT an Add with a target price of S$2.13. We

continue to favour FCT for its potential to grow
organically through positive rental reversions over
the next two years. In addition, its yield-accretive
acquisition of Changi Citfy Point is expected to be
completed by 2014.

OUE Hospitality Trust

OUE-HT is our top pick among hospitality REITs on
the back of its stable outlook, high proportion of
income secured under fixed rates and room for
RevPAR growth from AEI at MOS.

2003

2004

2005

2006

2007

Household Income

2008

2009

2010

2011

2012

2013

CPI

SOURCES: CIMB, COMPANY REPORTS

Our recent survey highlighted several

key trends, including i) Singapore
remains an attractive destination,
particularly for business purposes, ii)
mid-range to upscale hotels that are
well located may outperform peers,
and iii) the growing popularity of
online shopping will have a negative
impact on retail mall owners. Given
this, we identify several stocks,
including OUE-HT and FCT, as
potential outperformers.

Value for money

From this survey, it can be deduced
that Singapore remains a favourable
destination for visitors, particularly
for business purposes. In addition, as
visitors seek better value for their
money, the performance of mid-tier
and high-end hotels, particularly
those in good locations, are expected
to be better than their peers in the
luxury or budget space.

Retail rents expected to

remain stable
On the other hand, with the growing
trend of online shopping, mall owners
may find it hard to raise rental rates,
particularly on the back of dampened
demand as a result of higher
operating costs and difficulty in
hiring help to man shops. We believe
prime malls that focus on high street
fashion and accessories may be the
most affected while suburban malls
are expected to be more resilient due
to the nature of their business.

Favour OUE-HT and FCT

Given the locality and segment in
which OUE-HT is positioned in, we
believe this REIT may continue to
outperform its peers. Meanwhile, in
the retail segment, we believe FCT is
very well positioned to weather the
growing trend of online shopping and
will continue to enjoy positive rental
reversions and growth for years to
come.

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.
Designed by Eight, Powered by EFA

May 21, 2014

KEY CHARTS
The gateway to business

In the top 10 convention cities in the world in 2012 as

ranked by the International Congress and Convention
Association (ICCA), Singapore was the only Asian city to
be listed. In addition, the Singapore Tourism Board
(STB) previously highlighted that business travellers
contributed 33% of the countrys tourism receipts and it
aimed to increase it to 36% by 2020. Currently, with six
existing convention and exhibition venues in the market,
Singapore maintains its position as a leading MICE
destination in Asia in terms of venue supply. Our survey
similarly highlights this trend, with a staggering 62.5% of
respondents coming to Singapore for business.

Others,
6.3%

Leisure,
31.3%

Business,
62.5%

Price and locality rule

Brand,
0.0%

Interestingly, price has been identified as the key

determining factor when choosing a hotel. Aside from
price, the locality of the hotel is deemed to be the second
most important choice. On this basis, we believe hotel
owners within the upscale segment and with good
locations may outperform peers.

Others,
0.0%

Location,
41.2%

Price,
58.8%

Higher discretionary spending

Over the last two years, the amount of

money I allocate for holidays has...

Despite all the complaints about the rising costs of

groceries, eating out, transport and kids education, 74%
of our respondents say they have increased the amount
of money spent on discretionary items over the past two
years. Travel appears to have taken a bigger weight of
that spending, compared to buying items of desire. 64%
spent more money on holidays compared to two years
ago, none spent lower. As for retail spending, the
majority of respondents (34%) spent the most
incremental dollars through online shopping channels.

Lower,
0.0%

Risen by
>50%,
5.3%

Over the last two years, the channel that

has seen the most increase in my retail
City center
spending is..
shopping
malls
(Orchard,
City Hall,
Marina),
15.0%

Risen by
25-50%,
34.7%

Stayed
about the
same,
36.0%

Suburban
shopping
malls,
27.5%

Overseas
countries,
23.8%
Internet
shopping,
33.8%

Risen by 125%,
24.0%

Too many malls?

Currently, Singapore offers 4.6 sq ft per capita of

suburban retail space (6.9 sq ft if prime malls are
included), a level that is significantly lower than most
developed cities around the world (11.8-45.2 sq ft per
capita of retail space). Although there is an estimated
upcoming supply of c.2.6m sq ft in 2014, the level of
pre-commitment (80-100%) for these new malls is
expected to provide mall owners with the ability to hold
their rental rates steady.

50.0

Retail space per capita (sf)

45.2
45.0
40.0
35.0
30.0
23.7

25.0
20.0
14.0

15.0

11.8

10.0
5.0
0.0

6.9
4.6

14.4

16.4

May 21, 2014

Figure 2: CIMB REIT Overview

Company
Ascott Residence Trust
Ascendas Hospitality Trust
CDL Hospitality Trust
Far East Hospitality Trust
OUE Hospitality Trust
Hospitality simple average

Bloomberg
Ticker
ART SP
ASCHT SP
CDREIT SP
FEHT SP
OUEHT SP

Recom.
Hold
NR
Add
Reduce
Add

Price
(local curr)
$1.20
$0.74
$1.74
$0.88
$0.89

Target Price
(local curr)
$1.22
NA
$1.97
$0.80
$0.96

Market Cap
(US$ m)
$1,464
$651
$1,354
$1,242
$930

Core P/E (x)

CY2014
CY2015
20.3
19.9
43.2
33.4
15.4
14.5
17.8
17.1
14.7
14.5
22.3
19.9

P/BV (x)
CY2014 CY2015
0.9
0.9
1.0
1.0
1.1
1.1
0.9
0.9
1.0
1.0
1.0
1.0

Recurring ROE (%)

Asset leverage (%)
Dividend Yield (%)
CY2014
CY2015
CY2016
CY2014
CY2015
CY2014
CY2015
4.3%
4.5%
4.7%
36%
37%
6.9%
7.0%
2.5%
3.1%
5.9%
na
na
7.9%
8.0%
6.9%
7.3%
7.4%
30%
30%
6.6%
7.0%
5.1%
5.3%
5.5%
31%
31%
6.3%
6.5%
6.5%
6.7%
6.9%
32%
32%
7.9%
8.0%
5.1%
5.4%
6.1%
32%
32%
7.1%
7.3%

3-year DPS
CAGR (%)
0.7%
na
4.4%
1.3%
na
2.1%

AIMS AMP
Ascendas REIT
Cache Logistics Trust
Cambridge Industrial Trust
Mapletree Industrial Trust
Mapletree Logistics Trust
Sabana Shariah
Soilbuild Business Space REIT
Viva Industrial Trust
Industrial simple average

AAREIT SP
AREIT SP
CACHE SP
CREIT SP
MINT SP
MLT SP
SSREIT SP
SBREIT SP
VIT SP

NR
Hold
Add
Add
Add
Hold
NR
NR
Add

$1.42
$2.42
$1.20
$0.76
$1.47
$1.19
1.07
0.79
$0.79

NA
$2.36
$1.33
$0.80
$1.64
$1.13
NA
NA
$0.87

$704
$4,642
$743
$757
$1,984
$2,327
$589
$507
$373

9.1
16.1
15.0
17.8
15.5
15.7
16.1
15.4
15.5
15.1

13.9
15.8
14.6
17.3
15.2
15.5
15.4
12.7
14.9
15.0

1.0
1.2
1.2
1.1
1.2
1.2
1.0
1.0
1.1
1.1

1.0
1.2
1.2
1.1
1.2
1.2
1.0
1.0
1.1
1.1

7.0%
7.5%
8.1%
6.2%
8.0%
7.9%
6.1%
6.0%
6.8%
7.1%

7.3%
7.6%
8.4%
6.5%
8.1%
7.9%
6.5%
7.7%
7.2%
7.5%

7.5%
7.8%
9.2%
6.7%
8.4%
8.2%
7.0%
7.6%
8.5%
7.9%

na
30%
32%
33%
34%
33%
na
na
38%
33%

na
34%
35%
33%
38%
35%
na
na
38%
35%

7.7%
6.1%
7.2%
6.9%
6.8%
6.3%
7.6%
7.4%
8.7%
7.2%

7.7%
6.3%
7.5%
7.0%
7.0%
6.5%
7.7%
7.6%
8.9%
7.4%

62.0%
3.6%
3.1%
3.2%
3.3%
3.1%
-3.6%
na
87.6%
20.3%

Capitacommercial Trust
Frasers Commercial Trust
Keppel REIT
OUE Commercial REIT
Suntec REIT
Office simple average

CCT SP
FCOT SP
KREIT SP
OUECT SP
SUN SP

Hold
Add
Hold
Add
Add

$1.62
$1.32
$1.27
$0.80
$1.78

$1.55
$1.39
$1.21
$0.90
$1.83

$3,746
$708
$2,829
$550
$3,544

21.3
15.8
21.1
na
28.5
21.7

19.6
15.0
19.0
23.7
23.3
20.1

1.0
0.9
0.9
0.8
0.9
0.9

1.0
0.9
0.9
0.8
0.9
0.9

4.5%
5.4%
4.3%
na
3.0%
4.3%

4.9%
5.7%
4.8%
3.2%
3.7%
4.5%

5.2%
na
5.0%
3.2%
4.1%
4.4%

30%
37%
39%
41%
36%
37%

30%
37%
36%
43%
39%
37%

5.0%
6.7%
6.1%
na
5.0%
5.7%

5.3%
7.3%
6.0%
6.7%
5.8%
6.2%

3.5%
na
-1.6%
na
4.3%
2.1%

CT SP
FCT SP
MCT SP
SPHREIT SP
SGREIT SP

Hold
Add
Add
NR
Hold

$2.04
$1.85
$1.33
1.02
$0.82

$2.06
$2.13
$1.33
NA
$0.80

$5,637
$1,219
$2,205
$2,035
$1,410

17.5
16.6
18.8
21.9
15.6
18.0

18.4
15.4
18.2
21.4
15.2
17.7

1.2
1.1
1.1
1.1
0.9
1.1

1.2
1.1
1.1
1.1
0.9
1.1

6.7%
6.3%
6.1%
5.4%
5.6%
6.0%

6.3%
6.9%
6.2%
5.3%
5.8%
6.1%

6.4%
na
6.4%
na
5.9%
6.2%

35%
31%
39%
na
29%
33%

35%
31%
39%
na
29%
34%

5.4%
5.9%
5.7%
5.2%
6.5%
5.7%

5.7%
6.4%
5.8%
5.2%
6.6%
5.9%

4.6%
na
3.1%
na
3.6%
3.8%

CRCT SP
CRT SP
LMRT SP
MAGIC SP
PCRT SP

NR
NR
NR
NR
Reduce

$1.54
$0.98
$0.41
$0.90
$0.54

NA
NA
NA
NA
$0.50

$1,003
$334
$795
$1,918
$494

16.5
11.2
13.5
17.8
na
14.8

14.9
11.7
12.7
16.7
20.2
15.3

1.0
1.1
0.9
0.8
0.7
0.9

1.0
1.0
0.8
0.8
0.7
0.9

7.1%
15.0%
10.1%
5.8%
-4.5%
6.7%

6.9%
9.6%
10.6%
6.2%
3.5%
7.4%

11.0%
na
9.0%
6.7%
3.2%
7.5%

na
na
na
na
37%
37%

na
na
na
na
37%
37%

6.4%
8.8%
7.4%
6.9%
6.8%
7.3%

7.0%
8.8%
7.9%
7.3%
4.1%
7.0%

10.0%
na
3.5%
na
-18.5%
-1.7%

FIRT SP
PREIT SP
RHT SP

NR
Reduce
Add

$1.18
$2.37
$0.88

NA
$2.41
$0.91

$672
$1,145
$553

12.0
20.0
15.9
16.0

12.0
19.0
14.5
15.2

1.2
1.5
1.0
1.2

1.2
1.5
1.0
1.2

9.3%
7.2%
6.2%
7.6%

9.3%
7.6%
6.9%
7.9%

9.6%
7.9%
7.2%
8.2%

na
34%
10%
22%

na
34%
19%
27%

7.0%
4.9%
8.9%
6.9%

7.2%
5.2%
8.9%
7.1%

5.4%
5.9%
5.0%
5.4%

CMMT MK
IGBREIT MK
PREIT MK
SREIT MK

Hold
Hold
Hold
Hold

$1.46
$1.18
$1.37
$1.36

$1.47
$1.25
$1.45
$1.40

$805
$1,259
$1,281
$1,236

16.5
17.7
18.5
15.5
17.1

15.7
17.0
18.3
14.3
16.3

1.3
1.2
1.4
1.2
1.3

1.4
1.2
1.4
1.2
1.3

8.0%
6.9%
7.7%
7.8%
7.6%

8.6%
7.1%
7.8%
8.3%
8.0%

9.1%
7.3%
7.8%
na
8.1%

31%
26%
19%
35%
28%

31%
26%
19%
36%
28%

6.4%
6.5%
5.7%
6.3%
6.2%

6.8%
6.4%
5.7%
7.0%
6.5%

6.0%
2.2%
2.8%
na
3.7%

Axis REIT
AXRB MK
Malaysia Industrial simple average

Add

$3.39

$3.67

$486

18.0
18.0

17.1
17.1

1.5
1.5

1.6
1.6

8.6%
8.6%

9.1%
9.1%

9.6%
9.6%

34%
34%

34%
34%

6.3%
6.3%

5.8%
5.8%

4.2%
4.2%

18.0

17.2

1.1

1.1

6.4%

6.6%

7.0%

32%

33%

6.6%

6.8%

9.1%

CapitaMall Trust
Frasers Centrepoint Trust
Mapletree Commercial Trust
SPH REIT
Starhill Global REIT
Retail simple average
CapitaRetail China Trust
Croesus Retail Trust
Lippo Malls Indonesia Retail
Mapletree Greater China
Perennial China Retail Trust
Retail Ex-Sin simple average
First REIT
Parkway Life REIT
Religare Health Trust
Healthcare simple average
CapitaMalls Malaysia Trust
IGB REIT
Pavilion REIT
Sunway REIT
Malaysia retail simple average

Simple Average (all)

SOURCES: CIMB, COMPANY REPORTS, BLOOMBERG

Calculations are performed using EFA Monthly Interpolated Annualisation and Aggregation algorithms to December year ends

May 21, 2014

Table of Contents
1. BACKGROUND

p.4

2. HOSPITALITY

p.5

3. RETAIL
4. IMPLICATIONS

p.9
p.12

CIMB cost of living survey series

#3 will rents get stuck?
1. BACKGROUND
1.1 Singapore, the expensive city
Singapore has been ranked as the most expensive city in the world by the
Economist Intelligence Unit (EIU). Our recent survey on affordability in
Singapore displayed a similar opinion from the general population. This report
presents some of the data we collected and analysed from the survey and
attempts to discuss the affordability of Singapore for both locals and visitors,
particularly focusing on room rates and retail rents in Singapore.

1.2 Visitor arrivals expected to continue to grow

Back in 2005, STB forecast visitor arrivals of 17m per year by 2015. With 2013
drawing around 13.5m visitors and given the fact that there are more
attractions and events to support further growth in tourism, we remain
confident that visitor arrival numbers could rack up 4.7% CAGR over the next
two years to achieve STBs 2015 goal. Although the recent MH370 incident may
have dissuaded some Chinese citizens (accounted for 14.6% of visitors in 2013)
from visiting Singapore, we believe this is a short-term effect and sentiment will
recover gradually. Recently, STB forecast tourist arrivals to grow 5.2-8.4% yoy.

1.3 Purchasing power of Singaporeans remains strong

With inflation growing steadily by c.2.2% p.a. since 2001 while household
income on average grew 4.6% p.a. over the same period, real income of the
Singapore household has strengthened over time. As highlighted by Singstat in
a recent report, over the past five years from 2008 to 2013, the median monthly
income from resident-employed households rose by 11% in real terms.

Figure 3: CPI vs. household income

(S$)

Index

11,000

120.0

10,000

115.0
110.0

9,000

105.0
8,000
100.0
7,000
95.0
6,000

90.0

5,000

85.0

4,000

80.0
2000

2001

2002

2003

2004

2005

2006

2007

Household Income

2008

2009

2010

2011

2012

2013

CPI

SOURCES: CIMB, Singstat

May 21, 2014

2. HOSPITALITY
2.1 Singapores stellar tourism growth
Singapores tourism sector has gone from strength to strength over the past
decade, recording a CAGR of 6.7% in visitor arrivals in 2002-13 and a rise in
tourism receipts from S$8.8bn to a preliminary estimate of S$23.5bn. Tourism
in Singapore received an additional boost in 2010 when both integrated resorts
(IRs) were launched. Since then, tourist arrivals have posted a CAGR of 12.4%
while tourist spending notched up a CAGR of 16.8%. In 2013, visitor numbers
reached 15.5m (+7.2% yoy), the top end of STBs forecast range of 14.8m-15.5m.
Figure 4: Singapore visitor arrivals
Million
18.0
16.0
14.0
12.0
10.0
8.0
6.0
4.0

2015F

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

0.0

2014F

2.0

SOURCES: CIMB, STB

Figure 5: Singapore tourism receipts (S$)

Billion
30.0

25.0

20.0

15.0

10.0

2015F

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

0.0

2014F

5.0

SOURCES: CIMB, STB

2.2 Historical supply and demand of hotels

Since 2002, the supply of hotel rooms in Singapore has delivered a CAGR of
3.7%, significantly lower than the 6.7% CAGR for visitor arrivals. Tourist
arrivals during this period rose 89% while the supply of available hotel rooms
went up by only 40%. Consequently, average room rate (ARR) grew by 105%,
coupled with a strong occupancy, drove RevPAR up substantially by 1.6x over
the same period, except during the 2008-09 global financial crisis.

May 21, 2014

Figure 7: Historical supply vs. demand for hotel rooms

Figure 6: Supply of hotel rooms

Rooms
60,000

Title:
Source:

80%
70%

50,000

60%

Please fill in the values above to have them entered in your rep

50%
40,000
40%
30%

30,000

20%
20,000

10%

2013F

2012

2011

2010

2009

2008

2007

2006

2005

2004

-10%

2003

2002

0%
10,000

-20%

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

Supply

Demand

SOURCES: CIMB, STB, CBRE, HORWATH HTL

SOURCES: CIMB, STB, CBRE

Figure 9: Revenue per available room

Figure 8: Hotel room occupancy rate

S$

mil
20

90%

400

85%

350

80%

300

75%

250

70%

200

65%

150

Title:
Source:

18
16
14

Please fill in the values above to have them entered in your rep

12
10
8
6
4
2
100

2013F

50

1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

60%

2002

Avail. Rm nights at hist ave. eff of 95% (m)

Est. room nights taken (m)

RevPAR

RevPAR - Luxury

Occupancy (%)

RevPAR - Mid-Tier

RevPAR - Economy

SOURCES: CIMB, STB, CBRE

RevPAR - Upscale

SOURCES: CIMB, CEIC, URA

2.3 A place for business

In the top 10 convention cities in the world in 2012 as ranked by the
International Congress and Convention Association (ICCA), Singapore was the
only Asian city to be listed. In addition, STB previously highlighted that
business travellers contributed 33% of the countrys tourism receipts and it
aimed to increase it to 36% by 2020. In the nearer term, STB targets to raise
tourism receipts from the BTMICE sector from S$5.6bn in 2011 to S$10.5bn by
2015. Currently, with six existing convention and exhibition venues in the
market (Marina Bay Sands (MBS), Resorts World Sentosa, Raffles City
Convention Centre, Changi Exhibition Centre, Singapore Expo and Suntec
Singapore), Singapore maintains its position as a leading MICE destination in
Asia in terms of venue supply.

May 21, 2014

2.4 Further boost factors to make it more business-friendly

One-third of the S$905m committed to boost Singapores tourism in 2012 was
set aside for the development of the MICE sector over the next five years.
Singapores attractiveness for business and MICE is reflected in our survey
results, where c.63% of the survey respondents highlighted that the strongest
reason for coming to Singapore is business. On the flip side, the same group of
respondents highlighted that both the largest deterrence to (37.5% of total
respondents) and the main reasons for visiting Singapore (41.2% of total
respondents) hinge on their employers willingness to send them for work here;
both trends implying a rising dependence on corporate spending for hotels in
Singapore.
Figure 10: Reasons for visiting Singapore

Figure 10: Main deterrence to visiting

Singapore
Social or
political
instability,
0.0%

Others,
6.3%

Leisure,
31.3%

Business,
62.5%

Figure 11: Main drivers for visiting

Singapore more often
More
meetings,
incentives
and
conference
events,
11.8%

My office
has
stopped
sending me
there,
37.5%

My
employer
sends me
there more
often,
41.2%

A lack of
new
attractions,
37.5%

Expensive
offerings,
18.8%

SOURCES: CIMB

A stronger
Singapore
dollar, 6.3%

A weaker
Singapore
dollar,
35.3%

More
tourism
offerings,
including
cruise
offerings,
11.8%

SOURCES: CIMB

SOURCES: CIMB

2.5 Impact of strong currency

Aside from higher hotel room rates, the Singapore dollar has been on an
upward trend - as demonstrated in Figure 12. Although the continuous
strengthening of the Singapore dollar does not currently pose a material
deterrence for visitors to Singapore (Figure 10), the results of the survey show
that a weaker Singapore dollar (Figure 11) could boost the number of visitors.
Figure 12: Singapore exchange rate
NEER
121
119

Stronger S$

117
115
113
111
109

Weaker S$

107
105
103
101
99
Oct-10

Apr-11

Oct-11

Apr-12

Oct-12

Apr-13

Oct-13

SOURCES: CIMB, COMPANY REPORTS

May 21, 2014

2.6 Value for money

Approximately 59% and 41% of total respondents highlighted that room prices
and the location of the hotel, respectively, remain the key determining factors
when considering their hotel choice. The survey further highlighted that 87.6%
of respondents paid between US$135 and US$240 per night during their stay in
Singapore - indicating that most visitors surveyed prefer to stay in upscale and
mid-tier hotels. In 2013, tourism receipts inched up by only 1.7% yoy the
slowest growth in a decade vs. 3.6-50% in 2009-2012. The slower growth can
be partly attributed to lower spending by business travellers as corporates cut
their spending, a weaker Indonesian rupiah and more visitors choosing to
travel via budget airlines as they become more cost-conscious. According to
CEIC, since 2006, approximately 18-24% of tourist expenditure was spent on
accommodation. With visitors growing focus on getting the best value for the
price paid, we believe the upscale and mid-tier hotels in prime locations will
outperform luxury hotels.
Figure 13: Key determinant for choice of
hotels
Brand,
0.0%

Others,
0.0%

Figure 14: Average price paid for hotels

US$240
US$300 (or
S$300
S$380),
6.3%

More than
US$300 (or
more than
S$380),
0.0%

Less than
US$135 (or
less than
S$170),
6.3%

Figure 15: Choice of airlines to Singapore

Middle
Eastern
airlines,
2.7%
Asia-based
full-service
airlines,
14.9%

Europe or
US-based
full-service
airlines,
0.0%

Location,
41.2%
SIA, 24.3%

Price,
58.8%

US$180
US$240 (or
S$230
S$300),
43.8%

US$135
US$180 (or
S$170
S$230),
43.8%

SOURCES: CIMB

SOURCES: CIMB

Budget
airlines,
58.1%

SOURCES: CIMB

2.7 Supply and demand for hotels balances out in 2014

Growth in new rooms in 2014 is forecast to be 5.7% (an average of 3,200 rooms
per year between 2013 and 2015). This high supply is expected to be mitigated
by stronger tourist arrivals, estimated to be 5.2-8.4% yoy by STB recently. As
new supply gets digested, a stronger turnaround in the global economy, more
events in 2014 and recovering corporate travel/spending are expected to
stabilise RevPAR in 2014 after the weakness witnessed in 2013.

May 21, 2014

3. RETAIL
3.1 Where is the money?
From our survey, it was indicated that household necessities (31.7%) and
cars/transport (24.4%) were the top two expenditure items in Singapore.
However, when compared to two years ago, 73.7% of survey respondents said
that the proportion of disposal income they spent on discretionary items had
risen, with near to one-third of respondents indicating that the dollar amount
of discretionary spending had risen by 25-50%. But where is this spending
being channelled to?
Figure 16: Largest expenditure item

Figure 17: Second-largest expenditure

item

Cars and
transport,
24.4%

Bags,
shoes,
gadgets
and
entertainme
nt, 4.9%

Savings,
retirement
planning
and
medical
expenses,
23.2%

Bags,
shoes,
gadgets +
entertainme
nt, 7.3%

Savings,
retirement
planning
and
medical
expenses,
24.4%

Food,
household
necessities
and
childrens
education,
31.7%
Holidays
and
staycations,
15.9%

Holidays
and
staycations
, 19.5%

Figure 18: Change in discretionary

spending vs. two years ago

Risen by 125%,
38.8%

Been about
the same,
21.3%

Cars and
transport,
20.7%

Risen by
25-50%,
32.5%

Food,
household
necessities
and
childrens
education,
28.0%

Gone
lower, 5.0%
Risen by
>50%,
2.5%

SOURCES: CIMB

SOURCES: CIMB

SOURCES: CIMB

3.2 Advent of the e-commerce era

Most respondents indicated that they chose to spend additional dollars on
discretionary items through the e-commerce channel (33.8%) compared to
suburban malls (27.5%), city centre shopping malls (15.0%) and overseas
(23.8%). Why is this so? The majority say that they can find better prices online
(52.0%) while convenience is another big factor (33.8%). This finding is in line
with a report where it was highlighted that when delivery costs are included, 10
out of 15 sample items offer lower prices. The most popular category of items
bought online is apparel and accessories (53.8%) similar to the trend in the
U.S.
Figure 19: Channel with the largest
expenditure

Figure 20: Key motivation to shop online

Low
shipping
costs, 1.3%

City center
shopping
malls
(Orchard,
City Hall,
Marina),
15.0%

Convenienc
e, 33.8%

Figure 21: Items bought via Internet

shopping
Food &
beverage,
5.1%

Computers
&
consumer
electronics,
14.1%

Overseas
countries,
23.8%

Suburban
shopping
malls,
27.5%

Others,
19.2%

Wider
product
offerings,
13.0%

Internet
shopping,
33.8%

Household
goods,
7.7%

Lower
pricing,
51.9%

SOURCES: CIMB

SOURCES: CIMB

Apparel &
accessories
, 53.8%

SOURCES: CIMB

May 21, 2014

3.3 Mall space vs. e-space

Mall owners have regularly highlighted that fashion anchor tenants are able to
pay higher rentals. However, with the shift in shopping preference towards
e-commerce, particularly for fashion and accessories, the rental bargaining
power of mall owners may be more subdued going forward. Particularly, as
highlighted in a report, nearly one in five online consumers research
information on products and prices offline before buying them online. Although
the strengthening of e-commerce remains a key challenge for mall owners,
traditional brick-and-mortar shops offer services and experiences that online
shops lack. The major distinctions include: i) offering the touch and feel of the
physical goods, ii) goods can be taken right away, iii) easier to resolve issues, if
any arises, iv) only certain goods are available in-store, etc. Although some of
these distinctions may change over time as the e-commerce market matures, we
believe high-end shops can still continue to attract traffic to the malls as a
separate report from Europe has highlighted that the value of purchases made
online tend to be fairly low, with c.70% of online shoppers spending less than
200.

3.4 Strength of suburban malls

The performance of suburban malls is usually deemed as indifferent to the
external economic conditions as these malls are usually situated in
neighbourhoods with high resident concentration. Retailers in these malls are
usually in the trade of household goods and daily necessities. Based on our
survey, 27.5% of respondents highlighted their preference to shop in these
malls vs. the malls in the city centre (15.0%). This result coincides with the data
that food and beverages (5.1%) and household goods (7.7%) are the
least-preferred items to be bought online. With this, we can deduce that
suburban malls will continue to play an imperative role in the retail business in
Singapore and may be the least likely to be affected by the strengthening trend
of online shopping.

3.5 Median income vs. retail sales per capita

As demonstrated in Figure 22, on the back of a high employment rate and
growing family income, the median income to retail sales has been growing
steadily since 2006. This, in our view, will continue to provide fundamental
support to retail sales as affordability remains steady.
Figure 22: Median income vs. retail sales

Figure 23: Net take-up rate

S$
45000

6x

140%

120%

40000
5x

100%

35000
80%
30000

Title:
Source:

4x

Please fill in the values above to have them entered in your rep

60%
40%

25000
3x

20%

20000

0%
15000

2x

-20%

10000

-40%

1x

-60%

5000
0

-80%

x
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Net take-up of shop space

Gross Median Annual Income (LHS)

Net take-up of shop space in Outside Central Region

Retail Sales per capita (LHS)

Net take-up of shop space in Central Region

Median income to retail sales (RHS)

SOURCES: CIMB, CEIC

10

SOURCES: CIMB, URA

May 21, 2014

3.6 Oversupply of malls?

With a growing supply of mall space in Singapore averaging c.500,000 sq ft
per year since 2009 one has to wonder if there are too many malls in
Singapore. However, our recent data revealed that the majority of the new
supply over the past few years was mainly new malls in the suburban parts of
the island. Currently, Singapore offers 4.6 sq ft per capita of suburban retail
space (6.9 sq ft if prime malls are included), a level that is significantly lower
than most developed cities around the world (11.8-45.2 sq ft per capita of retail
space). Although there is an estimated upcoming supply of c.2.6m sq ft in 2014,
the level of pre-commitment (80-100%) for these new malls is expected to
provide mall owners with the ability to hold their rental rates steady.

Figure 24: Population growth vs. retail space growth

Figure 25: Retail sales vs. retail space growth

70%

90%

60%

80%

50%

70%

40%

Title:
Source:
Please fill in the values above to have them entered in your report

60%

30%

50%

20%
40%

10%
30%
0%
20%
-10%
10%
Population Growth

0%

Islandwide Retail Space Growth

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Outside Central Region Retail Space Growth

Central Region Retail Space Growth

Retail sales growth

Retail space growth

SOURCES: CIMB, CEIC, URA

Figure 26: Retail space per capita in Singapore

('sf)

SOURCES: CIMB, CEIC, URA

Figure 27: Retail space per capita globally

('sf)

8.5

4.6

50.0

4.6

45.0

Retail space per capita (sf)

45.2
8.3

4.5
8.1
4.5

7.9

4.4

7.7

4.4
4.3

7.5

40.0
35.0
30.0

* Suburban retail space per capita excludes non-residents living in suburban a

23.7

25.0
20.0

4.3

15.0

4.2

10.0

4.2

5.0

4.1

0.0

14.0

7.1
6.9

Retail space per capita (LHS)

14.4

16.4

11.8

7.3

6.9
4.6

Suburban retail space per capita (RHS)

SOURCES: CIMB, CEIC

SOURCES: CIMB, CEIC

3.7 The tightening of labour supply

Since 2013, the Singapore government has restricted access for most trades to
foreign labour. As a result of these tightening measures, operating costs for the
traditional brick-and-mortar shops have been on the rise. This, in turn, has
resulted in one of the key deterring factors when retailers consider the prospect
of opening new shops in Singapore.
11

May 21, 2014

4. IMPLICATIONS
4.1 Hotels Value for money
From this survey, it can be deduced that Singapore remains a favourable
destination for visitors, particularly for business purposes. In addition, as
visitors seek better value for their money, the performance of mid-tier and
high-end hotels, particularly those in good locations, is expected to be better
than their peers in the luxury or budget space.

4.2 Retail Headwinds from online shopping but rental

expected to remain stable
On the other hand, with the growing trend of online shopping, mall owners may
find it hard to raise rental rates, particularly on the back of dampened demand
as a result of higher operating costs and difficulty in hiring help to man shops.
We believe prime malls that focus on high street fashion and accessories may be
the most affected while suburban malls are expected to be more resilient due to
the nature of their business.

4.3 Stock implications

HOSPITALITY
Pure Singapore upscale hotel play (OUEHT SP, Add). We continue to
favour OUE-HT for its ability to boost RevPAR by potentially charging higher
room rates for its renovated rooms (40% of rooms scheduled for refurbishment
in FY14) and its attractive yield of 8% vs. the industrial peers 7.1%. In addition,
with its asset located in the prime district of Orchard Road and positioned in
the upscale hotel segment, we believe OUE-HT will be one of the key
beneficiaries of the strengthening of the hotel market in 2014.
Strengthening of Singapore portfolio (CDREIT SP, Add). Similarly,
CDL-HT, which owns a diversified portfolio of upscale hotels in Singapore, is
expected to benefit from the increasingly cost-conscious visitors to Singapore.
In addition, with c.55% of its total revenue coming from corporate spending, we
believe CDL-HT will benefit from an event-packed calendar in Singapore and
the potential recovery of corporate spending. Other factors that can boost
earnings include the continued strengthening of tourism in the Maldives, where
CDL-HT owns two resorts.
RETAIL
Frasers Centrepoint Trust remains top pick (FCT SP, Add). With its
portfolio of well-positioned malls in the suburban parts of Singapore, we believe
FCT will be one of the mall owners least affected by the growing online shopping
trend. In addition, with 13.3% and 39.6% of leases due to be renewed in FY14
and FY15 respectively, concentrating in Causeway Point and North Point, two of
its strongest-performing malls, FCT is expected to undergo positive rental
reversions in FY14 and FY15. Lastly, with the upcoming acquisition of Changi
City Point, we expect the REIT to be able to achieve 20-30% of positive rental
reversion from this mall over the next two years where 38.4% of leases are due
to be renewed in FY15 and 40.3% in FY16.
SPH REIT may continue to have pricing power (SPHREIT SP,
Unrated). The owner of Paragon along Orchard Road may similarly be one of
the mall owners the least affected by the rise of online shopping. As highlighted
previously, the value of purchases made online tends to be fairly low. Paragon,
which enjoys a portfolio of luxury brand tenants, is expected to continue to do
well. Clementi mall, SPH REITs other asset, is located in the suburban part of
Singapore and is also expected to continue to do well.
Buy SingPost (SPOST SP, Add). A key beneficiary of the rising e-commerce
trend is SingPost, which provides e-commerce logistics solutions across the
Asia-Pacific region. SingPost also operates vPOST, an international shipping
service that allows customers to ship items from overseas merchants.

12

May 21, 2014

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As of May 20, 2014, CIMBR does not have a proprietary position in the recommended securities in this report.
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Corporate Governance Report:
The disclosure of the survey result of the Thai Institute of Directors Association (IOD) regarding corporate governance is made pursuant to the policy of the Office of the Securities and
Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the Market for Alternative Investment disclosed
to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on
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The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may be changed after that date. CIMBS does
not confirm nor certify the accuracy of such survey result.
Score Range:
90 100
80 89
70 79
Below 70 or
No Survey Result
Description:
Excellent
Very Good
Good
N/A
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May 21, 2014

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Distribution of stock ratings and investment banking clients for quarter ended on 31 March 2014
1416 companies under coverage for quarter ended on 31 March 2014
Rating Distribution (%)

Investment Banking clients (%)

Outperform/Buy/Trading Buy/Add

56.2%

4.6%

Neutral/Hold

28.0%

2.7%

Underperform/Sell/Trading Sell/Reduce

15.8%

1.0%

As at the time of publishing this report CIMB is phasing in an absolute recommendation structure for stocks (Framework #1). Please refer to all frameworks for a definition of any
recommendations stated in this report.

CIMB Recommendation Framework #1

Stock Ratings
Add
Hold
Reduce

Definition
The stocks total return is expected to exceed 10% over the next 12 months.
The stocks total return is expected to be between 0% and positive 10% over the next 12 months.
The stocks total return is expected to fall below 0% or more over the next 12 months.

The total expected return of a stock is defined as the sum of the: (i) percentage difference between the target price and the current price and (ii) the forward net dividend yields of the
stock.
Stock price targets have an investment horizon of 12 months.
Sector Ratings
Overweight
Neutral
Underweight

Definition
An Overweight rating means stocks in the sector have, on a market cap-weighted basis, a positive absolute recommendation.
A Neutral rating means stocks in the sector have, on a market cap-weighted basis, a neutral absolute recommendation.
An Underweight rating means stocks in the sector have, on a market cap-weighted basis, a negative absolute recommendation.

Country Ratings
Overweight
Neutral
Underweight

Definition
An Overweight rating means investors should be positioned with an above-market weight in this country relative to benchmark.
A Neutral rating means investors should be positioned with a neutral weight in this country relative to benchmark.
An Underweight rating means investors should be positioned with a below-market weight in this country relative to benchmark.

CIMB Stock Recommendation Framework #2 *

Outperform
Neutral
Underperform
Trading Buy
Trading Sell

The stock's total return is expected to exceed a relevant benchmark's total return by 5% or more over the next 12 months.
The stock's total return is expected to be within +/-5% of a relevant benchmark's total return.
The stock's total return is expected to be below a relevant benchmark's total return by 5% or more over the next 12 months.
The stock's total return is expected to exceed a relevant benchmark's total return by 3% or more over the next 3 months.
The stock's total return is expected to be below a relevant benchmark's total return by 3% or more over the next 3 months.

* This framework only applies to stocks listed on the Singapore Stock Exchange, Bursa Malaysia, Stock Exchange of Thailand, Jakarta Stock Exchange, Australian Securities
Exchange, Taiwan Stock Exchange and National Stock Exchange of India/Bombay Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily
outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.
CIMB Research Pte Ltd (Co. Reg. No. 198701620M)

CIMB Stock Recommendation Framework #3 **

Outperform
Neutral
Underperform
Trading Buy
Trading Sell

Expected positive total returns of 10% or more over the next 12 months.
Expected total returns of between -10% and +10% over the next 12 months.
Expected negative total returns of 10% or more over the next 12 months.
Expected positive total returns of 10% or more over the next 3 months.
Expected negative total returns of 10% or more over the next 3 months.

** This framework only applies to stocks listed on the Korea Exchange, Hong Kong Stock Exchange and China listings on the Singapore Stock Exchange. Occasionally, it is
permitted for the total expected returns to be temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.

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May 21, 2014

Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (IOD) in 2013.
AAV Good, ADVANC - Excellent, AMATA - Very Good, ANAN Good, AOT - Excellent, AP - Very Good, BANPU - Excellent , BAY - Excellent , BBL - Excellent, BCH Good,
BCP - Excellent, BEC - Very Good, BGH - not available, BJC Very Good, BH - Very Good, BIGC - Very Good, BTS - Excellent, CCET Very Good, CENTEL Very Good, CK Excellent, CPALL - Very Good, CPF Excellent, CPN - Excellent, DELTA - Very Good, DTAC - Excellent, EGCO Excellent, GLOBAL - Good, GLOW - Very Good, GRAMMY
Excellent, HANA - Excellent, HEMRAJ - Excellent, HMPRO - Very Good, INTUCH Excellent, ITD Very Good, IVL - Excellent, JAS Very Good, KAMART not available,
KBANK - Excellent, KKP Excellent, KTB - Excellent, LH - Very Good, LPN - Excellent, MAJOR Very Good, MAKRO Very Good, MCOT - Excellent, MINT - Excellent, PS Excellent, PSL - Excellent, PTT - Excellent, PTTGC - Excellent, PTTEP - Excellent, QH - Excellent, RATCH - Excellent, ROBINS - Excellent, RS Excellent, SAMART Excellent,
SC Excellent, SCB - Excellent, SCC - Excellent, SCCC - Very Good, SIRI Very Good, SPALI - Excellent, STA - Good, STEC - Very Good, TCAP - Excellent, THAI - Excellent,
THCOM Excellent, TICON Very Good, TISCO - Excellent, TMB - Excellent, TOP - Excellent, TRUE - Excellent, TTW Excellent, TUF - Very Good, VGI Excellent, WORK
Good.

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